The health insurance sector is growing at a Compound Annual Growth Rate (CAGR) of about 50%—the highest growth rate among all non-life insurance segments. However, despite the growth, the insurers have been losing money overall. They do not seem to know the specific sources of leakages and how to restructure the features of the product, to make it more popular and financially less painful to them. In short, health insurance needs a sophisticated risk management approach.

The health insurance sector has witnessed an impressive growth in the post-liberalization era. Now, insurers should be initiating new innovating solutions to cover a wider segment of the Indian population for health insurance, instead of their unimaginatively raising the premium rates for all the consumers, as is being attempted now, as the only alternative to cope with the rising loss ratios of 100% plus. The data put out by one public sector insurer suggests that such a course is both possible and desirable; more of it later.

If the high loss ratios of 100% plus for the industry are viewed in the context of very low frequency of claim-reporting, only by about 5% of all insured—with 95% of insured under the health segment not making any claims—it is quite obvious that insurers should be making efforts to trace this 5% claim-causing segment, with a laser-like approach and know more about its propensities for making high severity claims. Insurers need to preach and practice risk management, and try and minimize adverse selection and moral hazard aspects of the proposer, before taking the easy way out—raising rates for almost everyone. Insurers should be true to their profession; they should manage the risks they accept. They ought to know that raising the rates should be the last resort and not the first.

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